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Kasper’s New Friend: Jones Wins Auction With $216.6M Offer

Jones Apparel Group won out over Kellwood Co. in a bankruptcy court auction for Kasper A.S.L., in a bid worth $216.6 million.

NEW YORK — Kasper A.S.L. has found its home at last — and it’s under the corporate umbrella of Jones Apparel Group.

In the final auction Thursday, Jones gained ownership of Kasper, along with its signature suit and Anne Klein businesses, with a bid totalling $216.6 million.

This story first appeared in the August 8, 2003 issue of WWD.  Subscribe Today.

Jones beat out Kellwood Co., which in June became the stalking horse with a $163.6 million bid for Kasper. This spring, Jones had been seen as the leading candidate for the firm.

The winning bid consisted of $204 million in cash and the assumption of $12.6 million in prepaid royalties. A bankruptcy court hearing is set for Thursday for approval of the winning offer. If granted, the sale will be implemented through an amended plan of reorganization filed with the court, which will require approval of Kasper’s creditors. The transaction is expected to close by the end of the year.

Jones’ chief executive officer, Peter Boneparth, told WWD he was “delighted” by the outcome of the auction. “This acquisition fits our strategy from a number of different perspectives.”

While Kasper will bring Jones the dominate position in the U.S. suit business, it also brings $358 million in annual sales. When the license for the Lauren by Ralph Lauren better line reverted back to Polo Ralph Lauren Corp. from Jones in June, as reported, more than half a billion in annual sales went with it. In 2002, the line brought in $548 million.

The acquisition helps fill that void, as will sales from Jones New York Signature, the firm’s new better line, but Boneparth said keeping up the top line was not the motivating force behind the deal — rather, it was other strategic considerations.

“We didn’t really start this acquisition to go out and find $500 million in revenues,” he said.

In addition to adding “a great stable of brands” to the company, he said Kasper’s distribution in the better department stores is familiar ground for Jones.

“When you look at the sum of this, it really was a pretty easy decision for us to go after this,” said Boneparth. “We’re trying to achieve a balance across our business.”

The acquisition will help the firm keep roughly 40 percent of its revenues coming from the better sphere.

However, Jones’ ownership of the Anne Klein designer label might bring it more trouble with Polo, as reported. The two firms are locked in a legal dispute over issues involving the Lauren license. That dispute right now does not affect the Polo Jeans license held by Jones.

According to a Securities and Exchange Commission filing in May 1988, the Polo Jeans license has provisions that would prevent Jones from selling and advertising items that are “comparable and/or competitive with the Polo Jeans products and which bear the name of any fashion apparel designer…”

Boneparth said in a conference call to Wall Street earlier this year that he didn’t see any bar to future acquisitions because “classification” was the key in the Polo Jeans license while the restrictions in the Lauren license had to do with specified names.

However, classifications under the Polo Jeans label include jeans, T-shirts, khakis, shorts, blouses and skirts. At the Kasper Web site, information about Anne Klein product said, “AK Anne Klein is Anne Klein’s more casual sportswear line. Like Anne Klein New York, AK Anne Klein provides a complete lifestyle offering, from suiting separates to jeans and sporty pieces. Denim is a key component of this line with great-fitting jean styles as well as denim jackets, dresses and skirts.”

When asked whether an Anne Klein purchase would be considered a violation of the Polo Jeans license, a spokeswoman at Polo declined comment.

As for who will run the Kasper business under Jones, Boneparth said no decisions have been made.

It’s unlikely, though, that Kasper’s current ceo, John Idol, will remain on board. As reported, he was set to leave, had Kellwood won the auction.

It’s possible that Gregg Marks, currently president of Kasper, and Joseph Parsons, currently chief financial officer, would be promoted to ceo and chief operating officer, respectively, as would have happened under an agreement with Kellwood.

Immediately after the auction, Boneparth noted, “John and Gregg Marks have done a superb job stabilizing the business and moving it forward. There was never a question about how great the brands were, and it was their discipline that led us to be more interested in Kasper.”

Idol noted, “I haven’t made any decisions yet,” though he indicated they could be forthcoming in early September. “I have a number of different options I’m still exploring.”

As reported, several companies have pursued talks with the turnaround specialist about other positions, such as the ceo opening at Michael Kors LLC.

For his trouble, Idol will receive significant compensation for his stint at Kasper. A filing with the SEC, earlier detailed a compensation package in the event that the company was bought during the bankruptcy, paying Idol a percentage based on the final selling price. Based on the previous bids for Kasper, he would have received about $11 million. With the increased bid, though, that package has swelled to more than $13 million.

For now, Idol said: “We’ll continue to operate in a business-as-usual manner. We remain an independent public company. We obviously will work closely with Jones Apparel during the transition.

“The company strategically will fit very nicely with Jones,” he added. “Clearly, Jones understands the branded and better markets, which are two things that we have.

“They’re going to do amazing things with our dress business,” noted Idol. “Clearly, they have a very successful dress business, much more successful than ours, and they’ll now be about to exploit our three lines.”

Jones also will be able to leverage its size and expertise to pump up and improve Kasper’s other offerings, particularly in sportswear.

In return, Idol noted, “we’re going to show them an awful lot about the suit.”

After months of speculation over who might win bankrupt Kasper, the bidding war turned into a battle between two of the industry’s behemoths: Jones and Kellwood.

Gilbert Harrison, chairman of Financo Inc., an investment bank that advised Kellwood, said, “No one else was a qualified bidder.”

Kellwood won the opening salvo when on June 12 it inked a deal to acquire Kasper for $163.6 million, in effect becoming the stalking horse and setting a baseline bidding price for Kasper. Jones last week upped the ante by offering $168.6 million, or $156 million in cash and $12.6 million in projected prepaid royalties.

With Jones now holding the winning bid, pending court approval, Kellwood is expected to receive a $4 million breakup fee from the Kasper estate. In addition, auction procedures obligates Kellwood to keep its $203 million cash bid, plus the assumption of prepaid royalties, open for 90 days as backup in case the deal with Jones falls through.

Of course, a dark horse could still come in and change the stakes by submitting a better offer next week when the matter is before the court for approval. But that would be a major surprise — financial sources noted that raising the necessary financial commitments at this late stage in the process and in the current economic environment would be extremely difficult. The only other major interested party in the past was the management-led takeover offer last December for $88 million, which was subsequently increased to $100 million.

Idol, however, indicated that no further bid would be forthcoming.

The bankruptcy court approved auction was held at the law offices of Weil, Gotshal & Manges, Kasper’s bankruptcy counsel. The bidding lasted for less than an hour, even with two requested time-outs, as the parties discussed privately how high they should go in the bidding. The first time-out occurred after Jones’ $180 million cash bid and the final time-out when it bid $200 million.

The bidding was done in $1 million increments. By the time Jones bid the cash portion up to $204 million, Kellwood chose to bow out. A Kellwood representative said at the auction, “At this point, Kellwood concludes that the value [of Kasper] does not exceed the last bid of $204 million.”

Financo’s Harrison said, “Kellwood and its advisers determined the extent to which they would bid the price up from the originally agreed purchase price to a point where Kellwood believed the transaction still would be financially favorable to the company and its shareholders. They determined that after the [bid] amount exceeded their [top] price, they would drop from the bidding.”

Sources familiar with the due diligence process surrounding the Kasper bidding have said that the valuation investment bankers put on Kasper was in the “$170 million range, and certainly no higher than $180 million.”

Of course, the real valuation of any asset is the amount a purchaser is willing to shell out to acquire it. In the case of Jones, it believes that the brand values inherent in the Kasper and Anne Klein labels are worth the $36.6 million premium above what financial professionals felt the bankrupt firm was worth. Kasper’s other brands are Albert Nipon and Le Suit.

Jennifer Black, an analyst at Wells Fargo Securities, said, “The career category is definitely what made Jones Apparel what it is today. The Kasper suit business at lower price points [than the Jones brand] should be a good addition to Jones, but I am wondering, did Jones overpay for Kasper?”

David Rosenberg, an analyst at Credit Suisse First Boston, wrote in a research update on Jones that the purchase price of Kasper appeared to be an attractive one for Jones.

Based on Kasper’s 2002 results, Jones is paying 0.58 times revenues and 4.6 times adjusted operating profit for the bankrupt firm. Kasper’s revenue of $376 million consisted of $200 million from its suits business, $83 million from sportswear, $15 million from the dress business, $60 million from retail and $18 million from licensing. Moreover, Kasper’s 2002 operating profit of $47 million, excluding $10 million favorable reversal of reserves, represented a 12.5 operating margin, with the first quarter 2003 margin at 15 percent on a 12 percent decline in revenue.

Kasper’s unsecured creditors are sure to be happy about the sale, although it could not be immediately determined what the return would be for them.

Mark Vidergauz, managing director of the Sage Group, a Los Angeles investment firm, was upbeat about the acquisition.

“My initial feeling is it’s a pretty good deal all around. Jones paid full price, but they have a good asset. It was something they needed to do. From Kellwood’s point of view, they, too, come out fine. They get the benefit of the breakup fee of $4 million and they’re showing they continue to be aggressive. For Kasper, it’s a full price.”

Vidergauz added, “In Jones’ hands, they’ll make the most of it. Jones needed it more than anyone.”

Allan Ellinger, senior managing director of Marketing Management Group, a consultant firm, said, “I think it’s a great deal for Jones. It’s a stable of brands in which they can leverage and build way beyond where they are to date. Anne Klein is a world-class brand which they can aggressively develop within the company with their core competencies, as well as leverage out. I do not think it’s a mature brand. It has a lot of legs. Kasper is a great brand that can be exploited much more aggressively, especially within the whole area of sportswear.”

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